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North America: June 2003

CalSTRS seeks emerging managers, Stanford to increase private equity exposure, US valuations fall further, Florida drops plans to protect terms and conditions from public disclosure…

Arsenal Capital Partners exceeds target with debut fund
US Arsenal Capital Partners has announced the final closing of Arsenal Capital Partners LP and its affiliated funds with total capital commitments of $300m. The firm's debut fund has exceeded its original target of $250m. The fund has received commitments from a wide range of domestic and international institutional investors including Adams Street Partners, LGT Capital Partners, National City Equity Partners, Northeast Utilities Pension Fund, Oklahoma Police Pension and Retirement System, America Capital Partners and Wilshire Private Markets. Arsenal Capital is led by managing directors Terrence Mullen, a former principal at Thomas H Lee Company, Barry Siadat, previously a senior executive at AlliedSignal, and James Marden, formerly an acquisitions executive with Medco Containment Services. Arsenal Capital focuses on middle-market companies in the manufacturing, healthcare and business services sectors. The firm targets investments in companies with revenues of between $50m and $500m.
AltAssets 16.6.03

Schroder Ventures US faces lawsuit over merger agreement with Xentel
The New York division of Schroder Ventures is the subject of a lawsuit filed by Xentel DM, a provider of event and direct marketing services. Xentel is filing for $50m in damages for an alleged breach of contract between the two firms. Earlier in the year, the two companies entered a merger agreement that would see Schroder Ventures acquire indirect control of Xentel on 30 May. The lawsuit alleges that Schroder Ventures terminated the agreement unexpectedly improperly. Schroder Ventures says that the lawsuit is without merit and that it will defend itself vigorously.
VentureWire 18.6.03

US CalSTRS tenders for $100m fund of funds emerging manager programme
The California State Teachers' Retirement System (CalSTRS) has issued a tender for a fund of funds manager to put together a $100m program of ‘new and next generation' private equity managers. The giant pension fund wants the selected manager to ‘construct, manage and liquidate' the fund. CalSTRS said it would select one or two managers for the portfolio, which is designed to complement its existing core private equity programme. CalSTRS currently holds a portfolio of alternative investments valued at around $4.5bn, a little over five per cent of its total assets.
AltAssets 3.6.03

Inverness Capital announces $100m close
Inverness Capital Partners, based in Philadelphia and Boston, has raised over $100m for its debut fund, overstepping its original $90m target. The firm has also extended its final target to $125m. Inverness focuses on small and medium-sized companies with revenues of between $5m and $25m and invests from $4m to $8m per company. Limited partners in the fund include The Graham Group, Wilmington Trust, Mercantile Bankshares and the Price Group.
PrivateEquityCentral 5.6.03

Icahn and Panda join forces to launch energy venture firm
US financier Carl Icahn and Panda Energy International have joined forces to launch a venture capital firm. The firm will focus on US energy assets and related infrastructure. Panda has been actively identifying desirable power plants and is already in advanced stages of negotiating for a number of opportunities in Texas, the Southeast and Northeast. Joint partnerships forged to make acquisitions in the US energy sector are becoming increasingly common. In April Warburg Pincus & Co committed an undisclosed amount of seed funding to midstream energy sector acquisition vehicle Targa Resources and Bain Capital joined forces with Tenaska, the largest private independent power producer in the US.
AltAssets 13.6.03

Stanford rumoured to be upping private equity exposure
The $7.6bn Stanford Management Company is said to be seeking international venture capital and buy-out funds to add diversification to its $760m private equity portfolio. The management company, which invests on behalf of the Stanford University endowment fund, already invests heavily in private equity outside the US. The fund did not comment on the rumours.
Institutional Investor 6.9.03

US venture valuations slip further in Q1 and fundraising still sliding
The US venture sector appears stuck to its downward course. Valuations for venture-backed firms slipped further in the first quarter and fundraising was the lowest since 1995, according to figures published by VentureOne. The median pre-money valuation fell to $10m in the first quarter from $10.2m in the fourth quarter and is now in a range comparable to the mid-1990s, the firm said. First round valuations fell significantly, second round financings were flat, and later rounds dropped slightly. Despite the insistence of many venture capitalists that the falls in valuations mean it is now a great time to invest, institutional investors in their funds appear unconvinced. Only $899m was raised for venture investment in the first quarter, the lowest since the second quarter of 1995.
AltAssets 3.6.03

New fund of funds launch to focus on smaller partnerships
Two senior investment officers in North Carolina are to set up a new fund of funds management firm specialising in commitments to smaller funds and emerging managers. The two, Charles Merritt and James A Mason work for unrelated endowments, Duke Endowment and Duke Management Company respectively. The new firm will start marketing later in the year.
The Private Equity Analyst June 2003

Pantheon Ventures closes US fund of funds on $313m
Global fund of funds firm, Pantheon Ventures, has announced the close of its fifth US orientated fund on $313m. Pantheon USA V was substantially over subscribed as the firm had originally targeted just $200m. PUSA V received commitments from public and corporate pension plans, endowments, foundations and family partnerships in the US, Europe and Australia. Pantheon's current US investment programme gives broadly equal weighting to buy-out funds, with an emphasis on smaller buy-outs, and venture funds. The firm focuses predominantly on established managers but also expects to make some commitments to first time funds.
AltAssets 20.6.03

CalSTRS seeks advisor for emerging manager portfolio
The $92bn California State Teachers' Retirement System is seeking proposals from advisors to manage a $100m ‘next generation' fund of funds. The search marks a departure from CalSTRS usual strategy of writing large cheques to a few managers. It is looking to invest in up to 30 US fund managers with the proviso that some money must be invested in the local economy. The public pension plan would like to back spin-out teams, newly formed groups and those raising capital from institutions for the first time. CalSTRS currently has $8.5bn in private equity, invested across 114 funds.
The Private Equity Analyst June 2003

Huron Capital forms speciality chemical investment vehicle
US private equity firm, Huron Capital Partners, has joined forces with veteran chemical executive Frederick Quinn and chemical sector investment specialist Carol Bramson.  The partnership will form a new holding company, Quest Chemical, to acquire companies in the speciality chemical sector. Quest will focus on investments in companies, which have developed solutions for surface protection, such as coatings, adhesives, polymers and thermoplastic films, according to PrivateEquityCentral. Terms of the agreement have not been disclosed. Quinn will serve as Quest's chief executive officer. He previously acted as chief executive of KJ Quinn, a speciality chemical company acquired by Sovereign Speciality Chemicals and was president of another subsidiary of Sovereign, Pierce & Stevens. Huron Capital Partners invests in niche manufacturing, value-added distribution, and specialty service companies. Huron closed its first fund on $72m in April 2000.
AltAssets 17.6.03

ComVentures launches new fund but loses partner
US early-stage communications venture firm, ComVentures, is to target $350m with the launch of its sixth fund. ComVentures' fifth fund closed in July 2000 at $550m. ComVentures has also announced that Partner David Helfrich has left the firm. He joined ComVentures in 1997 and is believed to have left to start a new technology buy-out firm. ComVentures has no plans to replace Helfrich.
VentureWire 10.6.03

Canadian Yaletown Venture Partners reaches first close for debut fund
Canada-based Yaletown Venture Partners has met the $30m first close target for its debut fund. Yaletown Ventures I will invest in West Canadian early-stage energy technology and information technology companies. Subsequent closings will be completed by the end of the year. The fund has received commitments from a number of major Canadian backers including pension funds, funds of funds and corporations. The majority of investors are based outside of the region and are investing in a Western Canadian fund for the first time. Investors include British Columbia Investment Management Corporation, Edgestone Capital Partners of Toronto, and the private equity division of Ottawa-based Export Development Canada. The fund has also received commitments from some of the region's most successful technology entrepreneurs and executives.
AltAssets 11.6.03

Florida drops plans to prevent partnership agreements from disclosure
The Florida State Board of Administration has decided to shelve attempts to stop its limited partnership terms and conditions from being disclosed in a move that it hopes will protect portfolio company information from being forced into the public domain. Earlier in the year, the board had drawn up a plan to reform the state's open records law that would have seen portfolio company information, due diligence records and terms and conditions exempted from disclosure. But it is thought that this recent decision is an attempt to make the bill more acceptable to legislators and to ensure that it gets passed. This development is widely thought to have broader implications for other public pension plans seeking to keep their terms and conditions private.
The Private Equity Analyst June 2003

US firms believe disclosure should be limited to IRRs
The majority of US private equity firms believe that disclosure of information by public pension plans should be limited to fund performance, according to a straw poll of GPs by The Private Equity Analyst. As many as 60 per cent of the 30 private equity professionals questioned said that disclosure should be limited to fund performance, 23 per cent that nothing should be made public and only 17 per cent that IRRs and terms and conditions should be available to the wider world. None of those surveyed believed that disclosure should reach down to the level of portfolio company data. This contrasts with the 30 per cent of European firms polled recently by the European Private Equity and Venture Capital Association that said portfolio company information could be made available without harm to the industry. In another study by PEA's sister publication GP Management Report most of the firms surveyed said they would not refuse to accept commitments from public pension plans. Only 8.3 per cent said they were likely to turn down money from such sources.
The Private Equity Analyst June 2003

North American MDS Capital closes ninth life sciences fund at $211m
North American life science private equity firm MDS Capital, has closed its ninth fund at $211m. The firm has exceeded its original target of $200m making MDS Life Science Technology Fund II its largest fund to date. The latest MDS fund will continue to with its predecessor's investment strategy and will invest in cutting edge medical sectors including target drug discovery and development and the rationalisation of healthcare information management. MDS Capital currently manages in excess of $1bn in investment assets and committed capital through both public and private vehicles. The firm has raised seven institutional funds and two retail funds.
AltAssets 5.6.03

New fund targets $100m to help US firms meet FASB legislation
A new fund has been launched to help US companies meet recent legislation enacted by the Financial Accounting Standards Board (FASB) in the wake of the Enron debacle. Abney & Holloway will target both institutional investors and high-net-worth individuals to raise funds in what the newly formed company believes may be a rapidly evolving market. In January of 2003 the FASB introduced new rules substantially modifying the accounting treatment for off-balance sheet special purpose entities (SPEs), such as those used in collateralised debt obligation transactions. These rules will affect both existing and newly created SPEs. Companies wishing to maintain their SPEs are required to secure an outside equity infusion. The purpose of Abney & Holloway's fund is to provide that outside equity and to help these companies restructure in order to keep their SPEs off the balance sheet. The new fund has a minimum investment threshold of $1m and has already secured a number of commitments.
AltAssets 23.6.03

Wilton Asset Management may exit fund of funds business
Wilton Asset Management may raise no further funds of funds, according to sources. The business, a joint venture between DuPont Capital Management and State Street Global Advisors, raised its debut $241m fund of funds in 2001, but has since lost two senior professionals. Dan Cahill left earlier this year to help build the US business of Standard Life (Private Equity) Investments and John Wolak left last year to join the Morgan Stanley Alternative Investment Partners fund of funds team. Wilton declined to comment on whether it was considering leaving the fund of funds arena, but said that it was ‘considering all of its alternatives'.
The Private Equity Analyst June 2003